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Home My WebLink About20080107Peseau rebuttal.pdfGIVE SLEY UP lAW OFFICES 601 W. Bannock Street PO Box 2720, Boise, Idaho 83701 TELEPHONE: 208 388-1200 FACSIMilE: 208 388-1300 WEBSITE: ww.givenspursley.com Gary G. Allen PeterG. Barton Christopher J. Beeson Clint R. Bolinder Erik J. Bolinder William C. Cole MiChael C. Creamer Amber N. Dina Kristin Bjorkman Dunn Thomas E. Dvorak Jeffrey C. Fereday Martin C. Hendrickson Steven J. Hippler Debora K. Krstensen Anne C. Kunkel Via Hand Delivery January 4, 2008 Jean Jewell Idaho PublicUtí1ities Commission 4 72W. Washington P.O. Box 83720 Boise,ID 83720-0074 Jeremy G, ladle Michael P. lawrence Franklin G. lee David R. Lombardi John M. Marshall Kenneth R. McClure Kelly Greene McConnell Cynthia A. Melillo Christopher H. Meyer RETIRED L. Edward Miller Kenneth L. Pursley Patrick J. Miler c: Ray~ D. Givens Judson B. Montgomeryt Jam~McClure Deborah E. Nelson F .._ i; W. Hugh O'Riordan, ll~C:.\ ml;~(fß, ()';:. G. Andrew Page Angela M. Reed Scott A. Tschirgi, lL.M. J, Will Varin' Conley E. ward Robert B. Whie Tetri R. Yost N0" In the Matter of the Application of Idaho Power Company.for Authority to Increase its Rates and Charges for Electrc Service to Electrc Customers in the State of Idaho Case Number: IPC-E-07-08 4489-29 Re: Our File: Dear Jean: Enclosed for filing please find an original and nine (9) copiesofDennisPeseau's Rebuttal Testimony in the above entitled matter. One copy has been designated as the reporter's copy, and a disk containing the testimony in ASCII format is also enclosed. Thank you for your assistance in this matter. CEW/tma cc: Service List (w/enclosures) S:\CLIENTS\4489\29\TA to Jean Jewell re Rebuttal Testimony.DOC jcereiYCil~ \0\ CO~War Conley E. Ward (ISB No. 1683) GIVENS PURSLEY LLP 601 W. Bannock Street P.O. Box 2720 Boise, il 83701-2720 Telephone No. (208) 388-1200 Fax No. (208) 388-1300 cew(fgivenspursley.com Attorneys for Micron Technology, Inc. S:\CLIENTS\4489\29\Rebuttat Testimony olD Peseau.DOC BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION IN THE MATTER OF THE APPLICATION Case No. IPC-E-07-08 OF IDAHO POWER COMPANY FOR AUTHORITY TO INCREASE ITS RATES AND CHARGES FOR ELECTRIC SERVICE TO ELECTRIC CUSTOMERS IN THE STATE OF IDAHO REBUTTAL TESTIMONY OF DENNIS E. PESEAU ON BEHALF OF MICRON TECHNOLOGY, INC. 1 Q. 2 A. 3 4 Q. 5 A. 6 Q. 7 A. 8 9 Q. 10 11 A. 12 13 14 15 16 17 18 19 Q. 20 21 A. 22 23 PLEASE STATE YOUR NAME AND BUSINESS ADDRESS. My name is Dennis E. Peseau. My business address is Suite 250, 1500 Liberty Street, S.E., Salem, Oregon 97302. HAVE YOU PREVIOUSLY FILED DIRECT TESTIMONY IN THIS PROCEEDING? Yes. WHAT IS THE PUROSE OF THIS REBUTTAL TESTIMONY? My rebuttal testimony briefly responds to some of the cost of service arguments presented by Staff and other Intervenors. AR THERE ANY ISSUES ON WHICH THE COST OF SERVICE EXPERTS AR IN GENERAL AGREEMENT? I think all ofthe Intervenor witnesses on cost of service would generally agree with Dr. Reading's observation that "the cost of service studies presented by the company produce perverse results." Testimony of Don Reading, P. 23, L. 22. These "perverse results" fall into two separate categories, the first of which is primarly the result of the Company's misapplication of the Commission's traditional cost of service methodology. This is easily corrected. The second problem with the results is, unfortunately, more intractable, and wil have to be addressed in further investigations or proceedings outside this rate case. WHAT IS THE FIRST PROBLEM WITH THE COMPANY'S COST OF SERVICE RESULTS? As I explained at length in my direct testimony, the Company's sudden shift of costs from low load factor customer classes to high load factor customer classes is both irrational and unjustifiable. Doctors Goins and Reading essentially make the same point REBUTTAL TESTIMONY OF DENNIS E. PESEAU - 2 IPUC Case No. IPC-E-07-08 1 2 3 4 5 6 7 8 Q. 9 A. 10 11 12 13 14 15 16 Q. 17 18 A. 19 20 21 22 23 in their direct testimony. All three of us then go on to make changes to the Company's cost studies. Dr. Reading and I attempt to correct the Company's unjustifiable shift of costs from sumer peaks to non peak seasons, and both of us reallocate CSPP purchases to both demand and energy. Dr. Goins would take the latter adjustment further and reallocate all system purchases, not just CSPP. Finally, both Dr. Reading and Dr. Goins propose a reallocation of the demand and energy components of some generating facilities. AR ALL OF THESE PROPOSED CHANGES JUSTIFIED? In general, yes, but I would not file rebuttal testimony just to reiterate a case that has already been made. My purpose in this section of my rebuttal testimony is to point out that these corrections to the Company's cost of service study are not all of equal weight or importance. By far the most important of the Company's cost of service errors is the underweighting of summer seasonal costs. I want to make sure there is no misunderstanding on this point. I also wish to underscore for the Commission the need to avoid setting customer rates that promote additional summer on peak load growth. , is THERE A SIMPLE WAY TO ILLUSTRATE THE IMPORTANCE OF SEASONAL COSTS? The studies and rate burden proposed by Idaho Power, Staff, and the Irrgators depart from the historical W12CP method by deliberately allocating the high summer power costs away from the summer and into the non-summer off peak season. Barely a third of the power supply costs are allocated to the summer months under each of these studies, which is little more than the 25% that would be allocated to these months ifthere were no seasonal variations at all. This is despite the fact that, as I point out on page 43 of my REBUTTAL TESTIMONY OF DENNIS E. PESEAU - 3 IPUC Case No. IPC-E-07-08 1 2 3 4 5 6 Q. 7 8 A. 9 10 11 12 13 14 15 16 17 Q. 18 A. 19 20 21 22 direct testimony, summer peak marginal costs are nearly 300% higher than in the off peak season, and total consumption is much higher in the summer than in the non-peak seasons. In a nutshell, this misallocation to the non-summer season is what causes the dramatic reversal of revenue requirement responsibilities between the high load factor customers and the irrgation class that I explained on pages 54-57 of my direct testimony. YOU EARLIER STATED THERE is A SECOND "PERVERSE RESULT" IN THE COST STUDIES. WHAT WERE YOU REFERRG TO? While there is some dispute about the exact nature of the load growth that is taking place on Idaho Power's system, I think it is fair to say there is general agreement that the vast majority of this growth is coming from the residential and commercial classes. Furthermore, this growth is disproportionately on peak, and it is therefore exacerbating the deterioration in Idaho Power's load factor. Under these circumstances, it is disconcerting to say the least, when most of the cost of service results show that these two rapidly growing classes should receive no increase in rates, or even a small decrease. On the surface, this would appear to violate the fairness and effciency principles of cost of service. HOW CAN THIS SEEMINGLY INEXPLICABLE RESULT BE EXPLAIND? Mr. Hessing's testimony for the staff makes a valiant effort to explain these results, but upon examination his explanation fails to support his point. First, as he correctly points out, some of these costs fall on all the other customer classes, and this is doubly true if they consume disproportionately on peak as the Irrigators do. But he then goes on to suggest that the residential class is essentially paying its way because its approximate 6 REBUTTAL TESTIMONY OF DENNIS E. PESEAU - 4 IPUC Case No. IPC-E-07-08 1 2 3 Q. 4 A. 5 6 7 8 9 10 Q. 11 12 A. 13 14 15 16 17 Q. 18 19 A. 20 21 22 23 cents per kwh rate is high enough to cover the marginal cost of growth. This argument is incorrect. WHAT is THE ERROR IN MR. HESSING'S SECOND ARGUMENT? In the first place, there is only one month in the year (April) when residential rates are sufficient to cover marginal power supply costs, and durng the summer peaks their rates are orders of magnitude below full marginal costs. Second, Mr. Hessing overlooks the fact that approximately half of the residential class's rate is designed to recover distribution costs, customer costs, and the like. So additional revenues only contrbute about 3 cents to the recovery of power supply costs. SO WHAT is THE REAL EXPLANATION FOR THE ANOMALOUS RESULTS FOR THE RESIDENTIAL AND COMMERCIAL CLASSES? Part of the problem is due to the cost shifting I have talked about repeatedly, plus the vagaries introduced by Idaho Power's use of forecasted costs. But having said that, the heart of the matter is that embedded cost studies do not attempt to directly identify individual customer class's relative responsibility for the marginal cost of growth. In order to establish such a linkage, a marginal cost study of some sort would be necessary. AR YOU SUGGESTING THE USE OF MARGINAL COST STUDIES IN THIS CASE? I don't think there is remotely enough evidence in this record to support a leap of that sort, and in any event the Commission must tread very carefully here because of legal constraints. What I will say is what I have said before in my direct testimony. The Commission needs to reexamine the entirety of its ratemaking procedures in the light of changes to the Idaho Power system. Therefore, I again request that the Commission REBUTTAL TESTIMONY OF DENNIS E. PESEAU - 5 IPUC Case No. IPC-E-07-08 1 2 3 4 5 6 7 8 Q. 9 10 A. 11 12 13 Q. 14 A. order a formal investigation of the degree of cost differentials that Idaho Power is experiencing between summer and nonsummer capacity and energy costs in an effort to set rates to customer classes that wil reduce the present incentives to consume during the higher cost summer peak period. Reduction of these incentives would heighten the effectiveness of demand side management programs, and reduce the high growth rates in Idaho Power's peak loads. Beyond that, I am not prepared to go further without in depth study. IN THE INTERI, HOW SHOULD THE COMMISSION SET RATES IN THIS CASE? Given all the problems with forecasted data and the varous cost of service difficulties, I would not object to an across the board increase ifthe revenue requirement is ultimately determined to be something similar to the Staff s recommendation. DOES THIS CONCLUDE YOUR TESTIMONY? Yes. REBUTTAL TESTIMONY OF DENNIS E. PESEAU - 6 IPUC Case No. IPC-E-07-08 CERTIFICATE OF SERVICE I HEREBY CERTIFY that on this 4th day of January, 2008, I caused to be served a true and correct copy of the foregoing by the method indicated below, and addressed to the following: Jean Jewell Idaho Public Utilities Commission 472 W. Washington Street Boise, ID 83720-0074 U.S. Mail )( Hand Delivered Overnight Mail Facsimile E-Mail Baron L. Kline Lisa D. Nordstrom Idaho Power Company 1221 W. Idaho Street (83702) P.O. Box 70 Boise, ID 83707 email: bklinecNidahoPQ.lvcr.com Inordstrom(ã),idahopoyvei:coJl U.S. Mail X Hand Delivered Overnight Mail Facsimile E-Mail JohnR. Gale Vice President Regulatory Affairs Idaho Power Company 1221 W. Idaho Street (83702) P.O. Box 70 Boise, ID 83707 email: rgaleßò'idah0pQwer .C9JE U.S. Mail X Hand Delivered Overnight Mail Facsimile E-Mail Peter J. Richardson Richardson & O'Leary 515 N. 2ih Street Boise,ID 83702 email: peter(à!richardsonandoleary.com l' U.S. Mail Hand Delivered Overnight Mail Facsimile X E-Mail X U.S. Mail Hand Delivered Overnight Mail Facsimile 1\ E-Mail Eric L. Olsen Racine, Olson, Nye, Budge & Bailey Charered P.O. Box 1391 201 E. Center Pocatello, Idaho 83204-1391 email: elocg).racine1aw.net REBUTTAL TESTIMONY OF DENNIS E. PESEAU -7 IPUC Case No. IPC-E-07-08 Anthony Yankel 29814 Lake Road Bay Vilage, Ohio 44140 email: tony~yankei.net Dr. Don Reading 6070 Hill Road Boise, Idaho 83703 email: dreading~mil1dspring.com Weldon Stutzman Neil Price Deputy Attorney Generals Idaho Public Utility Commission 472 W. Washington (83702) P.O. Box 83720 Boise, Idaho 83720-0074 Email: weldon.stutzmaniiD.-,ia'!Q,Q. gOY Neil. price(ä),puc.idalio. go~ Michael Kurtz, Esq. Kur J. Boehm, Esq. Boehm, Kurz & Lowry 36 E. Seventh Street, Suite 1510 Cincinnati, OH 45202 email: mkurtzcPBKLlawfirm.com kboehm(a)BKLlawfjpii.com Lot H. Cooke United States DOE 1000 Independence Ave. SW Washington, DC 20585 email: lot.cooke(âJhq.doe.gov Dale Swan Exeter Associates, Inc. 5565 Sterrett Place, Suite 310 Columbia, MD 21044 Email: dswan0)exelerassocìates,-G9Trr REBUTTAL TESTIMONY OF DENNIS E. PESEAU - 8 IPUC Case No. IPC-E-07-08 Ã US. Mail Hand Delivered Overnight Mail Facsimile X. E-Mail j. U.S. Mail Hand Delivered Overnight Mail Facsimile "b E-Mail U.S. Mail X Hand Delivered Overnight Mail Facsimile E-Mail x US. Mail Hand Delivered Overnight Mail Facsimile i\ E-Mail x U.S. Mail Hand Delivered Overnight Mail Facsimile x. E-Mail 2\ US. Mail Hand Delivered Overnight Mail Facsimile )( E-Mail Dennis E. Peseau, Ph.D. Utility Resources, Inc. 1500 Liberty Street, Suite 250 Salem, OR 97302 Email: gpcseau(á)cxcite.corQ Electronic Copies Only: Dcnnis Goins Email: dgoinspmg(f),cox.nct Arhur Perr Bruder Email: Arthur.hruder((;ùhg.do~.gov REBUTTAL TESTIMONY OF DENNIS E. PESEAU - 9 IPUC Case No. IPC-E-07-08 x U.S. Mail Hand Delivered Overnight Mail Facsimile E-Mail